IP Update, Vol. 17, No. 12

Collateral Estoppel in Claim Construction

Addressing the issue of collateral estoppel as it relates to an earlier claim construction, the U.S. Court of Appeals for the Federal Circuit affirmed-in-part and reversed-in-part a district court’s finding that a party was collaterally estopped from seeking a construction of a claim limitation that was different from another court’s construction of that same term in a previous case. e.Digital Corp. v. FutureWei Technologies, Inc., Case No. 14-1019 (Fed. Cir., Nov. 19, 2014) (Moore, J.).

Prior to the present case, e.Digital brought suit against Pentax in the U.S District Court for the District of Colorado, asserting infringement of its patent. The asserted claims recited a “flash memory module which operates as sole memory of the received processed sound electrical signals.” The Colorado court construed the “sole memory” limitation to require “that the device use only flash memory, not RAM or any other memory system” to store the “received processed sound electrical signals.” Based on this construction, the parties stipulated to dismiss the case with prejudice, which the Colorado court granted. In an ex parte reexamination, the U.S. Patent and Trademark Office (PTO) subsequently reexamined another claim of the patent that included the identical “sole memory” limitation.

e.Digital later brought suit against GoPro, Pantech, Huawei and Apple in the U.S. District Court for the Southern District of California, asserting infringement of the reexamined patent and an unrelated patent (in the sense that they were not members of the same patent family). Based on the Colorado court’s previous construction, the defendants moved to apply collateral estoppel to the construction of the “sole memory” limitation in both of the asserted patents. The district court granted the motions to adopt the Colorado court’s construction reasoning that the two patents were closely related, at least in the sense that the reexamined patent incorporated the other patent by reference. After the California court rendered a final judgment of non-infringement, e.Digital appealed.

The Federal Circuit concluded that the district court correctly applied collateral estoppel to the reexamined patent because the “sole memory” limitation in the reexamined claim was identical to the term in the claims construed by the Colorado court and further, because the reexamination focused on limitations unrelated to the “sole memory” limitation. However, the Federal Circuit concluded that the district court erred in applying collateral estoppel to the unrelated patent because the “claims of unrelated patents must be construed separately.” While the reexamined patent incorporated the other patent by reference, the Federal Circuit noted that it disclosed a separate invention, it had a distinct prosecution history and different written description. The Federal Circuit explained that “a court cannot impose collateral estoppel to bar a claim construction dispute solely because the patents are [subject matter] related.” Rather, “[e]ach case requires a determination that each of the requirements for collateral estoppel are met, including that the issue previously decided is identical to the one sought to be litigated.”

Reissue Patents Must Be Drawn to the Same Invention as the Original Patent

Addressing the original-patent requirement, tracing vintage Supreme Court cases and interpreting the statutory purpose of 35 U.S.C. § 251, the U.S. Court of Appeals for the Federal Circuit affirmed a denial of preliminary injunction and a determination of patent invalidity, finding that reissue claims must be tied to a “clear and unequivocal” disclosure in the specification of the original patent. Antares Pharma, Inc. v. Medac Pharma Inc., Case. No. 14-1648 (Fed. Cir., Nov. 17, 2014) (Dyk, J.).

After Antares Pharma (Antares) filed suit accusing Medac Pharma (Medac) of infringing a reissue patent, Antares moved for a preliminary injunction. The asserted claims, which related to automatic injection devices used to self-administer pharmaceuticals, were drawn to safety features on injection devices. The reissue claims were broader than the claims of the original patent, which were limited to “jet injection devices.” In opposing the request for a preliminary injunction, Medica argued, inter alia, that the reissue claims were invalid under § 251, because the reissue claims violated the original-patent requirement and the recapture rule. The district court agreed with Medica that the claims violated the recapture rule because the broadened the scope of the reissue claims impermissibly covered subject matter that was surrendered during the original prosecution. Because the recapture analysis was sufficient to deny the motion for a preliminary injunction, the district court did not address the original-patent requirement. Antares appealed.

On appeal, Antares challenged the recapture analysis, while Medica contended that the district court was correct, but even so, maintained that failure to satisfy the original-patent requirement provided an alternative ground for affirmance. The Federal Circuit opinion focused on the original-patent requirement, declining to address the district court’s recapture ruling.

The Federal Circuit opinion provides several significant clarifications regarding the invalidity inquiry for reissue patents. First, the Court expressly stated that the recapture rule and the original-patent requirement, both falling under 35 U.S.C. § 251, are separate requirements for patentability. Second, citing to the 1942 Supreme Court decision in U.S. Industrial Chemicals v. Carbide & Carbon Chemicals, the Federal Circuit articulated the standard to satisfy the original-patent requirement, finding that the original specification must clearly disclose the newly claimed invention—hints, suggestions or indications in the specification are not sufficient.

The Federal Circuit began its discussion by distinguishing between the grant of a reissue patent under § 251 and securing a patent that is a continuation or divisional of an earlier application under § 120. Reissue claims are necessary only when an applicant has delayed seeking amendment until after the original patent application has issued. The Federal Circuit therefore reasoned that additional requirements will attach to reissue claims to ensure consistency between the original specification and the reissued claims. The analysis traced Supreme Court cases dating back to 1854 to support the proposition that a reissue claim must be drawn to the “the same invention as the original patent.” The holding in U.S. Industrial Chemicals was touted as the “definitive explanation” of the requirement, setting forth a test wherein reissue claims would be invalid if the original patent specification did not “fully describe” the broader reissue claims.

After reconciling that § 251, as enacted in 1952, was analogous to the statute being addressed in the earlier U.S. Industrial Chemicals case, the Court proceeded to address the elements of the asserted claims. Importantly, the specification of the original patent only envisioned “jet”-type automatic injection devices, but the asserted reissue claims covered non-jet-type injectors. According to the Federal Circuit, the asserted reissue claims “focused on particular safety features” not contained in the “jet injection limitation,” thus compelling the finding that the original claims were significantly different in scope. Indeed, as Antares argued in its opening brief, the reissue claims are a “different invention than that originally claimed.” After concluding that the “present invention” language in the original patent specification was limited to jet-type automatic injection devices, the Federal Circuit explained that the absence of express written description disclosure for the reissue claims compelled the conclusion that there was a failure to satisfy the original-patent requirement. Because the question presented on appeal was a pure issue of law, the appellate court affirmed the denial of the preliminary injunction, confirmed the invalidity of the asserted claims, and noted that a remand was not required.

Practice Note: This decision appears to be the first time the Federal Circuit has indicated that the original-patent requirement is distinct from recapture. Attorneys prosecuting reissue applications before the PTO will need to pay particular attention to the scope of the original specification in drafting broadened reissue claims to ensure that the subject matter of the reissue claims is adequately (i.e.,expressly) disclosed.

Stays of Litigation Warranted Even When the CBM Review Does Not Address All Asserted Claims or All Invalidity Defenses

Addressing the denial of a stay pending the covered business method (CBM) review of some, but not all, asserted claims in a district court action, the U.S. Court of Appeals for the Federal Circuit concluded that it was an abuse of discretion to not stay the entire case. In its decision, the Federal Circuit embarked on its own analysis of the four factor test for granting a stay pending CBM review and concluded that each factor strongly favored a stay. Versata Software, Inc. v. Callidus Software, Inc., Case No. 14-1468 (Fed. Cir., Nov. 20, 2014) (Chen, J.).

Versata Software sued Callidus Software for infringement of three patents related to the management and tracking of sales information by financial services companies, and Versata counterclaimed for infringement of its own patents. Before Versata identified the asserted claims, Callidus filed petitions seeking CBM review under § 101 of all claims of one patent and some claims of the other two patents. The district court declined to consider a stay until the Patent Trial and Appeal Board (PTAB) made a decision on whether to grant institution based on the petitions.

The PTAB ultimately granted the petitions, but Versata had since identified the asserted claims, which included claims that were not the subject of any CBM petition. Callidus then filed another set of petitions seeking CBM review of the remaining claims. After, the district court granted a stay on the first patent, but denied a stay on the remaining two patents, Callidus filed an interlocutory appeal to the Federal Circuit.

The Federal Circuit noted that the America Invents Act (AIA) permits de novo review of decisions on stays pending CBM review, but concluded that the district court was wrong even under an abuse of discretion standard.

On the first stay factor, simplification of the case, the Federal Circuit explained that a stay may be warranted even when the CBM review does not address all claims or invalidity defenses in the litigation, particularly because estoppel attaches to invalidity defenses that are advanced in the CBM review. The Court took judicial notice that the PTAB had since granted the second set of CBM petitions on all remaining claims and concluded that the first factor strongly favored a stay.

On the second factor, whether discovery is complete and a trial date has been set, the Federal Circuit explained that the district court erred by evaluating the circumstances at the time of its decision rather than at the time the stay was requested. The Court concluded that while a trial date had been set, the case had not yet progressed to a point that disfavors a stay because fact discovery was still ongoing, no depositions had been taken, expert discovery had not yet begun, and no claim construction had issued.

On the third factor, undue prejudice or tactical advantage, the Federal Circuit disagreed that Callidus was seeking a tactical advantage by staying Versata’s case while moving forward on its own claims because Callidus had asked for a stay of the entire case.

On the fourth factor, reduced burden of litigation, the Federal Circuit explained that the district court erred by looking backwards to Callidus’ preliminary motions to transfer venue and dismiss the case. The Court instructed that district courts should consider the matter prospectively and on that basis concluded that the fourth factor was tied to the first factor and also favored a stay.

Obviousness Must Be Supported by Analysis and Factual Findings

Addressing the need for factual findings to support a finding of obviousness, the U.S. Court of Appeals for the Federal Circuit vacated the lower court’s decision invalidating a patent, determining that the requisite findings to support an invalidity determination of obviousness were not made. Malico Inc. v. Cooler Master USA Inc., Case No. 13-1680 (Fed. Cir., Nov. 17, 2014) (Chen, J.) (non-precedential).

Malico sued Cooler Master and LSI Logic for infringement of its patented heat sink technology for cooling electronic components. Cooler Master and LSI introduced prior art and expert testimony that Malico’s patent was obvious in view of pre-existing heat sink technology and moved for summary judgment on invalidity. In opposing defendants’ motion, Malico offered no rebuttal expert testimony and failed to present admissible evidence of secondary conditions. The district court granted defendants’ motion for summary judgment of invalidity and concluded that Malico’s patent was merely an obvious improvement over the prior art. Malico appealed.

Reviewing the invalidity determination, the Federal Circuit found that the district court failed to explain how the prior art either disclosed or could be modified in an obvious manner to meet three limitations recited in the claims of the Malico patent. The Federal Circuit stated that its precedent is clear that obviousness is a question of law based on underlying factual findings. Even when the prior art does not teach each claim limitation, a claimed invention may be obvious so long as the record contains some reason that would cause one of skill in the art to make the modifications needed to obtain the claimed invention.

The Federal Circuit observed that the district court made no factual findings comparing certain claim elements of the Malico patent with the prior art, and that no analysis of why a skilled artisan would modify the prior art was performed. Though some invalidity analysis was provided in defendants’ expert report, the district court did not adopt the expert’s opinions as its own. But even if it had, the Federal Circuit explained that where the expert’s analysis fell short, the district court must make findings sufficient to support its determination that Malico’s patent was an obvious improvement over the prior art. Consequently, the Federal Circuit remanded the invalidity portion of the case.

"Nonce" Words and Means-Plus-Function Analysis

Where the word “means” is not actually recited in a patent claim, case law provides a strong presumption that the claim is not a means-plus-function claim under § 112(f). If it is shown, however, that the claim uses language or a word—a “nonce” word—that substitutes for the word “means,” the presumption can be rebutted. Addressing whether the presumption was rebutted by use of the words “module for . . . ,” the U.S. Court of Appeals for the Federal Circuit concluded that, in the context of the asserted patent, it was not. Williamson v. Citrix Online, LLC, Case No. 13-1130 (Fed. Cir., Nov. 5, 2014) (Linn, J.) (Reyna, J., dissenting).

The plaintiff, Richard A. Williamson, acting as trustee for the bankruptcy estate of At Home Corporation Bondholder’s Liquidation Trust, asserted a patent against a number of defendants, including Citrix. The patent relates to methods and systems for “distributed learning,” using networked computer systems to provide virtual classroom environments where presenters can present to remotely located audience members.

As issue with respect to § 112(f) was claim language that recited a “distributed leaning control module for receiving communications transmitted between the presenter and the audience member computer systems and for relaying the communications to an intended receiving computer system and for coordinating the operation of the streaming data module.” The district court concluded that the word “module” was a “nonce” word for “means” and that the claims were indefinite for failure of the patent to provide corresponding structure. Williamson appealed.

The Federal Circuit reversed, explaining that in order to rebut the presumption that § 112(f) does not apply, the challenger must show that “skilled artisans, after reading the patent, would conclude that [the] claim limitation is so devoid of structure that the drafter constructively engaged in mean-plus-function claiming.”

In its analysis, the Federal Circuit cited Lighting World v. Birchwood Lighting (Fed. Cir., 2004) for the proposition that “[a] claim expression cannot be said to be devoid of structure if it is used in ‘common parlance or by persons of skill in the art to designate structure, even if the term covers a broad class of structures and even if the term identifies the structure by their function.’” Technical dictionaries “may inform whether claim terms connote structure.” Finally, “it is important to consider the claimed expression as a whole, and not merely any single word, as well as its surrounding textual context.”

The Federal Circuit concluded that in this instance the presumption (i.e., that § 112(f) did not apply) was not rebutted because the definitions in technical dictionaries for “module” had “structure-connoting meanings,” including hardware or software structure; the modifier “distributed learning control,” showed that that the module was a as part of a definite structure, the “distributed learning server,” and that it “‘receive[s] communications . . . ,’ ‘relay[s] the communications . . . ,’ and ‘coordinat[es] the operation of the streaming data module,” such that the “claimed interconnections and intercommunications” did “connote structure”; and the specification explained “that the distributed learning control module operates as a functional unit of the distributed learning server and coordinates the operation of the streaming data module through input from the presenter computer system.”

In dissent, Judge Reyna agreed with the district court, that the claims should be considered means-plus-function claims, with the respective functions being recited after the words “module for,” a phrase that the Manual of Patent Examining Procedure (MPEP) expressly cites as an example of a placeholder for the word “means.” Pointing to Bosch v. Snap-On (Fed. Cir., 2014) where the Federal Circuit noted that “[t]he question is whether the claim language names particular structures or, instead, refers only to a general category of whatever may perform specified functions,” the dissent found that the dictionary definitions failed to provide structure, because they only provided general categories, hardware or software.

Patent Owner Without Control of Licensee Has No Standing to Sue

Applying patent licensor-licensee standing law to defendants’ motion to dismiss a plaintiff, the Federal Circuit affirmed the district court’s ruling that a patent owner had transferred sufficient rights to an exclusive licensee that it no longer had the right to file an infringement lawsuit. Azure Networks, LLC v. CSR PLC, Case No. 13-1459 (Fed. Cir., Nov. 6, 2014) (Chen, J.) (Mayer, J., dissenting-in-part).

After passing through many hands, the patent-in-suit was acquired by Azure Networks, a Texas company located in the U.S. District Court for the Eastern District of Texas. In 2010, Azure donated the patent-in-suit to Tri-County. The two companies then executed an exclusive license that transferred back to Azure a number of rights in the patent. In 2011, Azure and Tri-County jointly filed a patent infringement lawsuit against multiple parties, including CSR, Atheros, Qualcomm, Broadcom, and Marvell Semiconductor.

The defendants moved to dismiss Tri-County from the lawsuit for lack of standing, arguing that Tri-County had transferred all substantial rights in the patent to Azure. Among the rights transferred were the exclusive, worldwide and transferable right to practice the patent, the full right to enforce and sublicense the patent and the authority to reach settlements without Tri-County’s consent. Further, Azure could assign any of its rights under the agreement without Tri-County’s consent. Finally, the agreement specified that Azure had the right, but no obligation, to control future prosecution or pay maintenance fees related to the patent family. Because the rights transferred were so substantial, defendants argued that Azure was the effective owner and Tri-County had no right to enforce the patent.

Tri-County argued that it had retained substantial rights in the patent, including a share of proceeds from Azure’s litigation and licensing activities, as well as a non-exclusive and non-transferable right to practice the patent. Further, Tri-County could terminate the agreement under certain conditions, including breach by Azure. Also, the license agreement would automatically expire two years before expiration of the patents, though Tri-County could extend the agreement.

In analyzing the list of rights transferred to Azure, the Federal Circuit found that the most significant factor was that Tri-County reserved no right to control Azure’s litigation or licensing activities, which the Court’s Propat and Speedplay decisions cited as an indication that a licensor reserved substantial rights in the patent. Tri-County’s economic interest and non-exclusive right to practice the patent was given little weight by the Court, and even the termination clause for a breach of good faith did not outweigh Tri-County’s inability to veto or direct Azure’s actions. Finally, the panel majority noted that while the Court in Aspex Eyewear had held that agreements with hard termination dates could show that the licensor retained an ownership interest, because the Azure agreement terminated only two years before expiration of the patent and could be easily renewed for the remainder of the patent’s term, the termination date did not suggest that Tri-County retained ownership.

Accordingly, the Federal Circuit held that Azure was the effective owner of the patent-in-suit, and that because Tri-County was effectively a non-exclusive licensee, it had no standing to join the suit as a co-plaintiff.

USPTO Releases Interim Examination Guidelines for Determining Patent Eligibility Under 35 U.S.C. § 101 *Web Only*

On December 15, 2014, the U.S. Patent & Trademark Office (USPTO) released examination guidelines titled 2014 Interim Guidance on Patent Subject Matter Eligibility (the interim guidelines). The USPTO issued the guidelines in view of the recent Supreme Court decisions, Association for Molecular Pathology v. Myriad Genetics, Inc. (IP Update, Vol. 16, No. 6), Mayo Collaborative Services v. Prometheus Laboratories, Inc. and Alice Corp. Pty. v. CLS Bank International, et al. (IP Update, Vol. 17, No. 7). The interim guidelines supplement the June 25, 2014 Preliminary Examination Instructions and supersedes the March 4, 2014 Subject Matter Guidelines. The USPTO is seeking written comments on interim guidelines. The period for submitting comments expires March 16, 2015.

The USPTO summarized the guidelines in a two-step flowchart (see here). The first step is the same as the prior guidelines: determine whether the claim is directed to one of the four statutory categories, i.e., a process, machine, manufacture or composition. The second-step is a two-part analysis for claims directed to laws of nature, natural phenomena and abstract ideas (the judicially recognized exceptions).

In Step 2A, the examiner determines whether the claim is directed to any of the judicially recognized exceptions. If no, the claim is eligible and examination should continue for patentability. If yes, the examiner proceeds to Step 2B to analyze whether the claim as a whole amounts to “significantly more” than the exception.

In Step 2B, the examiner determines whether any element, or combination of elements, in the claim is sufficient to ensure that the claim as a whole amounts to significantly more than the judicial exception. If not, the claim is ineligible and should be rejected under 35 U.S.C. § 101. If yes, the claim is eligible.

The additional elements should be considered both individually and in combination. Individual elements, on their own may not add significantly more, but when taken in combination may amount to significantly more than the exception. Each claim should be separately considered based on the particular elements recited therein. If a claim is directed to a plurality of judicially recognized exception and fails the eligibility under at least one exception, the claim is ineligible, and no further eligibility analysis is needed.

The interim guidelines listed six non-exclusive types of limitations that may qualify as “significantly more” when recited in a claim with one of the judicial exceptions and four non-exclusive types of limitations that were not sufficient to qualify as “significantly more.”

The six types of limitations that may qualify as “significantly more” include:

• improvements to another technology or technical field;
• improvements to the functioning of the computer itself;
• applying the judicial exception with, or by the use of, a particular machine;
• effecting a transformation or reduction of a particular article to a different state or thing;
• adding a specific limitation other than what is well-understood, routine and conventional in the field, or adding unconventional steps that confine the claim to a particular useful application;
• other meaningful limitations beyond generally linking the use of the judicial exception to a particular technological environment.

The four types of limitations that were found not to qualify as “significantly more” include:

• adding the words “apply it” (or an equivalent) with the judicial exception, or mere instructions to implement an abstract idea on a computer;
• simply appending well-understood, routine and conventional activities previously known to the industry, specified at a high level of generality, to the judicial exception, e.g., a claim to abstract idea requiring no more than a generic computer to perform generic computer functions that are well-understood, routine and conventional activities previously known in the industry;
• adding insignificant extra solution activity to the judicial exception, e.g., mere data gathering in conjunction with a law of nature or abstract idea; or
• generally linking the use of the “apply it” judicial exception to a particular technological environment or field of use.

The Advocate General of the EU Clarifies Position on Enforcement of SEPs

Despite the fact that standard-essential patents (SEPs) have been on the agenda of the European Union (EU) competition law debate for some time now, little guidance has actually been provided to intellectual property right (IPR) holders and implementers of technologies as regards the licensing and protecting of essential technologies.

With two decisions on the abusive use of SEPs having been issued by the European Commission (Commission) earlier this year, the time is ripe to discuss the EU competition law understanding of the law on the matter. The much-awaited opinion of Advocate General (AG) Wathelet in case C-170/13, Huawei v ZTE does just that—it explains how the highest court in the EU might interpret the law on the seeking and enforcing of injunctions by SEP holders in the EU. Huawei Technologies Co. Ltd v. ZTE Corp., ZTE Deutschland GmbH,Case C-170/13.

Huawei, the holder of a patent essential to the LTE standard, entered into discussions with ZTE which had expressed an interest in signing a fair, reasonable and non-discriminatory (FRAND) licensing agreement allowing it to implement the technology. Given that negotiations between the companies were unsuccessful, Huawei brought an action for infringement against ZTE, seeking an injunction prohibiting continuation of the infringement.

In adjudicating on the matter, the Regional Court of Düsseldorf referred the following preliminary question to the Court of Justice of the EU (CJEU): whether—and, if so, in what circumstances—an action for infringement brought by a SEP holder against a manufacturer of products that comply with that standard constitutes an abuse of a dominant position for the purposes of EU competition law where the patent holder has made a commitment to grant licences on FRAND terms.

AG Wathelet issued his opinion in the case on November 20, 2014. Although not binding, this opinion sheds some light as regards the likely scope of the final judgment by the Court of Justice of the European Union (CJEU).

The AG devoted most of his attention to the two most persistent issues, namely whether SEPs confer market power and therefore create a presumption of dominance and whether the seeking of an injunction against an alleged infringer might be deemed as an abuse of dominance by the SEP holder under Article 102 of the Treaty on the Functioning of the EU (TFEU).

Dominance

It is almost too tempting for a national court to simply proceed with an Article 102 TFEU case on the assumption that the SEP implies that its holder enjoys dominance. In this respect, however, the AG reiterated that a company does not necessarily hold a dominant position when it owns standard-essential technology. He argued that any presumption of dominance should be rebuttable by reference to “specific, detailed evidence,” and that this should ultimately be assessed by national courts on a case-by-case basis.

That said, against the above (enthusiastic) deliberations of the AG, it is difficult to imagine a situation in which the SEP holder would not enjoy dominance on the relevant market. In other words, although it should in theory be possible to rebut the presumption that SEPs confer dominance, in practice this would not normally be the case.

Injunctive Relief Sought by the SEP Holder

According to the AG, if the potential licensee is “willing, ready and able” to enter into a FRAND licence and to pay an appropriate royalty, the SEP holder must take certain specific steps before seeking an injunction. AG Wathelet justifies this position by the fact that the technology implementer will not always know if the IPR in question is infringed, valid or essential.

The AG outlined what steps the SEP holder ought to take before seeking an injunction in order to limit the risk of his conduct being perceived as abusive.

First, the SEP holder should send to the implementer a written notice, specifying the SEP in question and how it is allegedly being infringed. Crucially, the AG explained that the SEP holder should not be obliged to alert the alleged infringer of the infringement if it has been established that the implementer was fully aware of the infringement.

Second, and regardless of the above point, the AG suggests that there must always be a written licence offer containing all terms which are “normal” for the industry as well as detailing the amount of royalty and how it was calculated. In relation to this guideline, it must be noted that contractual conditions will inevitably differ across industry sectors and jurisdictions. It is not difficult to envisage therefore that in certain circumstances this requirement could lead to the situation whereby the SEP holder is led to include specific clauses that will not be necessary (or “normal”) in every jurisdiction.

The AG clarifies that once these steps have been taken, the alleged infringer should respond to the offer in a diligent and serious manner. If the SEP holder’s offer is not accepted, it must present him with a reasonable counteroffer relating to the terms with which the licensee disagrees. The idea behind this mechanism is that it decreases the likelihood of the infringer’s conduct being tactical or dilatory, in which case it would not constitute an abuse under Article 102 TFEU for the SEP holder to seek an injunction. Similarly, if a potential licensee requests that a court or an arbitral tribunal determine the terms of the licence, its conduct should not be considered as dilatory or non-serious.

Other Considerations

One other consideration by the AG merits closer attention. He notes in his opinion that it is reasonable for a FRAND-bearing SEP licence to be negotiated and obtained “ex post”, i.e., following the licensee’s exploitation of the underlying technical specifications. In other words, the AG sees it as a legitimate step that the potential licensee would start using the patented technology even before negotiating and entering into the licence agreement with the SEP holder.

Comments

The opinion of AG Wathelet, together with the Commission’s decisions in the Samsung and Motorola cases, constitutes another piece of the SEP puzzle. The opinion contains some valuable guidance that makes the overall picture much clearer, but it is still far from being full and final.

As pointed out above, this opinion will not be binding on the CJEU, which can take a different stance on the issue, although in the majority of cases AG opinions tend to be followed. That said, given the complexity of the issues and the inherent difficulty in striking the right balance between the competing interests of the stakeholders concerned, it would not at all be surprising to see the CJEU suggesting yet another solution.

Pending the final judgments, SEP holders are therefore advised to take caution in their dealings with implementers of the patented technologies and vice versa.

Post-Alice—Claims Directed to an Abstract Idea Must Have Meaningful Limitations

Addressing patent eligibility in a covered business method (CBM) patent review, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) concluded that the claims of the patent at issue did not include any significant meaningful limitations beyond an abstract idea. LinkedIn Corp. v. AvMarkets, Inc., CBM2013-00025 (PTAB, Nov. 10, 2014) (Tierney, APJ.).

The petitioner, LinkedIn, challenged the patent, which describes generating sales leads on the Internet through the creation of web pages, as being directed to patent-ineligible subject matter under § 101. The claims recite, among other things, receiving and listing data items (sales leads) as hyperlinks on a web page and, on activation of a hyperlink, generating a web page showing the data item in a title, URL, meta-tag or text of the generated web page.

Under Alice Corp. v. CLS Bank Int’l, (IP Update, Vol. 17, No. 7), determining whether claims are directed to patent-eligible subject matter requires a two-story process determining whether the claims are directed to a patent-ineligible concept such as laws of nature, natural phenomena and, if they are, considering the claim elements individually and as an ordered combination to determine whether there are additional elements that transform the nature of the claim into a patent-eligible application.

The patent owner, AvMarkets, did not dispute the claims were directed to an abstract idea—namely, a product catalog—but, rather, asserted that the claims included meaningful limitations beyond the abstract idea. AvMarkets presented evidence that the claimed invention required specially programmed web servers. The Board, however, found that servers and desktop computers are effectively identical except in their external form factors, and thus the specific claim limitations merely required the use of a general-purpose computer. The Board also found that the limitations directed to the generation of web pages upon activation of a hyperlink and including a title, metadata and text in a web page such that it would be indexed were all disclosed as being well known in the patent’s specification. Consequently they were not meaningful limitations.

AvMarkets also argued that the claims did not preempt the abstract idea of creating a product catalog because others could provide product catalogs via the internet that differ from the claimed invention. However, the Board explained that the fact that “claims could be written differently does not demonstrate that the limitations added to the abstract idea are meaningful” —the additional limitations here were routine steps and merely post-solution activity. The Board found that the additional limitations relied on to narrow the claim to the application of an abstract idea were merely an attempt to limit the use of the abstract idea to a particular technological environment (e.g., a server on the internet), which is insufficient to render the claim patent eligible.

Practice Note: A claim directed to an abstract idea requires meaningful limitations if the claim is to be considered patent-eligible, post-Alice. Also, see note entitled “USPTO Releases Interim Examination Guidelines for Determining Patent Eligibility Under 35 U.S.C. § 101” (this edition of IP Update).

Standing Requires Articulation of Jurisdictional Facts

Addressing a petition for a covered business method (CBM) patent review, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) denied institution of the review for lack of standing. E*Trade Financial Corp. v. Droplets, Inc., CBM2014-0013 (PTAB, Oct. 30, 2014) (Gaudette, APJ.).

The petitioner, E*Trade, initiated the patent challenge, asserting that a CBM patent review was the appropriate vehicle to challenge the patent at issue. The patent included “computerized method” claims directed to delivering interactivity over the web to a client device.

In order for a challenged patent to be subject to CBM review, the petitioner must demonstrate that the patent is not for a technological invention. Particularly, the petitioner is required to show that the “claimed subject matter, as a whole, does not recite a technological feature that is novel and unobvious over the prior art,” as well as that the claimed subject matter does not solve a technical problem using a technical solution.

Regarding the first prong of the test, the petitioner argued that the claims recited computer technologies (i.e., a “client device,” “server” and “web browser”) that were all well known in the art and relied on its anticipation and obviousness arguments (in the petition) to show that the subject matter of the claims, as a whole, was not directed a novel and unobvious technical feature. In response, the patent owner, Droplets, described how the specific combination of hardware and software elements found in the specification and covered by the claims changed a fundamental technical operation of a computer system in a manner not found in the prior art.

In denying institution, the Board indicated that the first prong is “separate and distinct” from the requirement that the petitioner specify where each claim element is found in the prior art. Rather than focusing on specific claims or claim elements, the Board referenced the patent owner’s (more detailed) discussion of how the technical features of the patent were not found in the prior art, and concluded that the petitioner had not demonstrated in its petition that the claimed subject matter, as a whole, did not recite a technological feature that was novel and unobvious over the prior art. Specifically, the Board found that the “[p]etitioner has not shown by its arguments or supporting evidence that [the combination of steps disclosed by the prior art] would be expected to affect the way a computer system engages in interactivity over the web in the same manner as the claimed subject matter.”

With regard to the second prong—whether the claimed subject matter solves a technical problem using a technical issue—the petitioner summarized the subject matter of the independent claims and concluded that none of the technologies recited in the claims “solve a technical problem using a technical solution.” The Board found that this single conclusory statement was insufficient to meet the petitioner’s burden.

Practice Note: Petitioners should clearly articulate why a challenged patent is subject to CBM review or risk having the Board accept the patent owner’s version of why it is not.

Identifying the Real Party in Interest

Two recent decisions from the Patent Trial and Appeal Board (PTAB or Board) clarify the test for identifying the real party in interest. Both decisions addressed situations in which inter partes review (IPR) petitions supposedly omitted a real party in interest, an error that could be grounds for the PTAB to deny institution. In Samsung, the PTAB determined that an indemnification clause and a motion to intervene in an International Trade Commission (ITC) proceeding did not show that indemnitor (Google) was a real party in interest. In Medtronic, the PTAB determined that additional discovery was warranted when earlier IPR proceedings involved the same patents, the same counsel and similar prior art, but those earlier IPR proceedings identified an additional real party in interest. Together, these two decisions illuminate the PTAB’s views on the strength of various types of evidence, as well as the role of “control,” in identifying real parties in interest. Samsung Elecs. Co. v. Black Hills Media, LLC, IPR2014-00737 (PTAB, Nov. 4, 2014) (Hulse, APJ); Medtronic, Inc. v. Robert Bosch Healthcare Sys., Inc., IPR2014-00488; -00607 (PTAB, Nov. 5, 2014) (Arbes, APJ).

In Samsung, the patent owner, Black Hills, argued that the PTAB should deny Samsung’s petition for failing to identify Google as the real party in interest. Black Hills based its argument on two pieces of evidence: a Google and Samsung distribution agreement containing an indemnification clause, under which Google agreed to “defend, or at its option settle, any third party lawsuit or proceeding brought against Samsung”; and Google’s motion to intervene in a related ITC investigation. As the Board explained, whether a non-party is a real party in interest depends on whether the non-party “exercised or could have exercised control over a party’s participation in a proceeding” and “the degree to which a non-party funds, directs and controls the proceeding.”

Here the Board concluded that neither the distribution agreement or the ITC motion to intervene made Google a real party in interest. The indemnification clause did not grant Google control over Samsung’s actions in the IPR. Further, the motion to intervene in the ITC proceeding was a mere “expression of an interest” by Google, and did not show that Samsung and Google’s interests were aligned. The PTAB therefore determined that the petition had adequately identified all real parties in interest.

In Medtronic, the PTAB addressed a different situation. Medtronic, the petitioner, named itself as the sole real party in interest, but omitted Cardiocom, one of Medtronic’s subsidiaries. In two earlier IPR petitions—which were similar to the instant IPR petitions in that they challenged the same patents, shared the same counsel and declarant, and relied on similar prior art and arguments—both Medtronic and Cardiocom were named as real parties in interest. In order to more fully understand whether Cardiocom should have been identified in the instant petitions, Bosch propounded discovery requests seeking communications between Cardiocom and Medtronic.

The PTAB ultimately granted Bosch’s motion for the additional discovery, citing various factors including whether the additional discovery would be “useful”; i.e., more than merely “relevant” or “admissible,” but “favorable in substantive value.” Because Cardiocom was identified as a real party in interest in the earlier and similar IPR petitions, the PTAB determined that there was “more than a mere possibility” that the additional discovery would be “useful.”

Practice Note: These two decisions also reveal the various roles that “control” plays in identifying real parties in interest. In Samsung, the PTAB relied almost exclusively on a lack of “control” in deciding that Google was not a real party in interest. In contrast, in Medtronic, the PTAB granted Bosch’s motion for additional discovery despite the fact there was obviously no evidence to the effect that (the subsidiary) Cardiocom controlled (the parent) Medtronic.

Get Your Prior Art Ducks in a Row Before Filing Your Inter Partes Review Petition

In two recent decisions demonstrating that amending a petition for inter partes review (IPR) with supplemental information can be difficult, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) denied attempts to amend petitions, finding that amendments to petitions are limited to correcting clerical or typographical mistakes. National Environmental Products Ltd. v. DriSteem Corp., Case No. IPR2014-01503 (PTAB, Nov. 4, 2014) (Kalan, APJ.); PNC Bank National Ass’n v. Secure Axcess, LLC, Case No. CBM2014-001000 (PTAB, Nov. 5, 2014) (Ward, APJ.).

In the National Environmental decision, the petitioner filed a petition for IPR, challenging a patent owned by DriSteem. National subsequently submitted a supplemental filing requesting supplementation of its petition with a “recently discovered prior art patent” on which it intended to rely. After a conference call with the parties the Board concluded the supplemental filing should not be allowed.

The Board explained that the petitioner was effectively seeking authorization to substantively amend its petition and that amendments are typically limited to correcting clerical or typographical mistakes. The Board was unpersuaded that the petitioner should be authorized to submit supplemental information to bulk up its petition.

The Board noted that petitioner’s supplemental filing was filed without first obtaining Board authorization, which is required before motions can be entered. The Board also noted that the applicable law requires that the petition include all of the asserted grounds of unpatentability at the time of filing. Although the prior art patent was known to the petitioner at the time of filing, and the petitioner was identified on the face of the supplemental prior art patent, the petitioner was nonetheless unable to explain sufficiently during the call why the information was not included in its original petition. Accordingly, the Board denied National’s request to file an amended petition.

In the PNC Bank decision, the petitioner filed a petition for IPR challenging a patent owned by Secure Axcess. PNC Bank subsequently requested a conference call to discuss a request for authorization to submit supplemental information to the petition and thereby enter at least five new references into the record. The Board informed the petitioner that motions to submit supplemental information must show why the supplemental information reasonably could not have been obtained earlier and that consideration of the supplemental information would be in the interests-of-justice.

The petitioner explained that the new references were discovered as a result of a change in prior art search strategy. While acknowledging that each of the new references was publically available prior to filing its petition, petitioner explained that it would only have discovered the references had it used the alternate search strategy. The Board was not persuaded by PNC Bank’s explanation and concluded that the petitioner could not sufficiently establish why the supplemental information could not have been obtained earlier, or why consideration of the supplemental information would be in the interests of justice. Accordingly, the Board denied PNC Bank’s request to amend the petition.

Requests for Additional Discovery Governed by Garmin Factors

Addressing the issue of whether a patent owner’s motion for additional discovery was justified based on a newly-filed exhibit, the Patent Trial and Appeal Board (PTAB or Board) denied the request for failing to demonstrate the need for additional discovery in view of the Garmin factors. Seoul Semiconductor Co., Ltd., et al. v. Enplas Corp., IPR2014-00605 (PTAB, Nov. 5, 2014) (Arpin, APJ).

The Board had previously granted the patent owner’s request for additional discovery with respect to specific portions of an expert declaration directed to a “hand-drawn tracing analysis and [. . .] computer simulation”. However, without the authorization of the Board, the patent owner filed a new exhibit and requested additional discovery from the petitioner with respect to the new exhibit rather than the exhibit on which the Board had previously granted additional discovery. The Board had previously cautioned the patent owner about filing unauthorized motions, denied the patent owner’s request for additional discovery on the new exhibit and ordered the exhibit expunged. The Board further cautioned the parties that any future unauthorized motions shall be subject to sanctions.

With respect to the original exhibit, the Board applied the factors set forth in Garmin v. Cuozzo Speed Tech (IP Update, Vol. 17, No. 9; IP Update, Vol. 16, No. 12) in determining whether the additional discovery was needed to satisfy the interests of justice. In doing so, the Board considered several of the Garmin factors. The first Garmin factor requires that the party requesting discovery should already be in possession of evidence showing, beyond mere speculation, that something useful will be uncovered by the discovery requests. Here, the patent owner had only established the “mere possibility” that something useful would be found, which was not enough.

The next factor considered, the third Garmin factor, provides that it is not in the interest of justice to require a party to produce information the other party can reasonably figure out or assemble on its own without additional discovery of the opposite party. The Board concluded that the experts’ declaration disclosed all of the information necessary for the patent owner to figure out or assemble the information being sought without additional discovery and that the patent owner had failed to show that the information provided in the declaration was incomplete or inaccurate.

Finally, the Board applied the fifth Garmin factor, which provides that any additional discovery should be “sensible and responsibly tailored according to a genuine need.” The Board determined the patent owner’s additional discovery requests seeking “any and all experiments and work . . . , or any similar documents referring to [Parkyn] . . .” was too broad and overly burdensome and was not properly tailored to demonstrate the need for additional discovery.

Cost of Combination Doesn't Obviate Obviousness

Addressing the issues of patent priority dates (where the asserted priority document did not share an inventor with the challenged patent) and motivation to combine, the Patent Trial and Appeal Board (PTAB or Board), in a final written decision concluded that ordered the claims at issue were not entitled to the claimed priority date and were unpatentable as obvious over “intervening” prior art. The Board explained that a patent cannot claim an earlier priority date if it does not share a common inventor with earliest application in the priority chain, and that added complexity and expense alone are not enough of a reason to show that a person of skill in the art (POSITA) would not have a motivation to combine references. Polaris Wireless, Inc. v. TruePosition, Inc., Case No. IPR2013-00323 (PTAB., Nov. 3, 2014) (Kim, APJ).

Polaris filed an IPR petition, challenging certain claims of TruePosition’s patent relating to locating wireless devices, which can be used to locate cell phone and other wireless users in an emergency.

After construing a number of claim terms, the Board determined that the patent at issue could not claim a priority date earlier than a piece of prior art that predated the filing date of the application that matured into patent at issue. The Board explained that a patent at issue and the earliest application in the priority chain did not have a common inventor, notwithstanding that each application in the priority chain had a common inventor with the preceding application in that chain. Analyzing 35 U.S.C. § 120 and 37 C.F.R. § 1.78(c)(1), the Board concluded that a patent and the earliest application in the priority chain must share a common inventor and that the patent at issue was not entitled to a priority date earlier than the asserted prior art.

The Board further explained that TruePosition could not claim priority to the earlier application because it had failed to meet its burden of showing how each application in the chain of continuing applications met the written-description requirement of 35 U.S.C. § 112, first paragraph. Accordingly, the Board found the claims at issue were anticipated by the “intervening” prior art.

The Board also found that claims at issue were obvious. TruePosition made multiple, arguments that a particular reference was missing an element where the challenge was based on the combination of references that did include the “missing” element. The Board also rejected TruePosition’s argument that a POSITA would have not combined the references because the combination would have caused more complexity and expense. The Board held that this did not address why the combination would not have been predictable and within the abilities of a POSITA.

Finally, the Board rejected TruePosition’s motion to exclude an expert’s declaration based on hearsay. The Board explained that TruePosition had an opportunity to cross-examine the expert, and therefore, (whether or not it availed itself of that opportunity) the declaration was not hearsay. Although the Board also rejected TruePosition’s argument that the declaration should be excluded for bias, it noted that in any event bias would only go to the weight of the testimony, not its admissibility.

Prior Art Reference Does Not “Teach Away” if It Fails to Criticize, Disclaim or Discourage the Claimed Technique *Web Only*

Addressing the obviousness issue whether an asserted secondary reference impermissibly changes the principle of operation of a primary reference, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (Board) determined that some of the challenged claims were unpatentable, finding that the secondary reference impermissibly changes the primary reference’s principle of operation only if the secondary reference requires a change that is incompatible with the utility of the primary reference. Ultratec, Inc. v. CaptionCall, L.L.C., Case IPR2013-00288 (PTAB, Oct. 30, 2014) (Zecher, APJ).

CaptionCall owned a patent directed to a closed-captioning error correction technology, to be used primarily by deaf or hearing impaired users. Ultratec filed a petition for inter partes review (IPR) challenging some of the claims.

In its IPR petition, Ultratec argued that the disputed claims were obvious in view of two patents by Engelke II and Cervantes. Patent owner argued that Engelke II incorporated by reference another patent—Engelke I—and that Ultratec relied on Engelke I for some of the teachings that allegedly correspond to the features of the challenged patent.

The patent owner further argued that a skilled person in the art would not combine Engelke I and Cervantes because the combination renders Engelke I inoperable for its intended purpose and changes the principle of operation of Engelke I. Specifically, the patent owner argued that the system of Engelke I is directed to a system where a remote caller telephones a hearing-impaired user. The words spoken by the remote caller are automatically transcribed, and an assistant can view the transcription and make corrections before the transcription is provided to the hearing-impaired user. Cervantes is directed to users in an instant messaging environment being able to edit previous messages and resend the edited versions of the previous messages.

The patent owner argued that one of skill in the art would not combine Engelke I with Cervantes because the purpose and principle of operation of Engelke I are to correct a voice transcription before it is displayed to the hearing impaired recipient. Cervantes requires modifications to instant messages after they are transmitted to the recipient, which is not compatible with the purpose and principle of operation of Engelke I.

The Board disagreed, finding that the purpose and principle of operation of Engelke I are to have an assistant review an automatic transcription that is provided to a hearing impaired user, regardless of whether the assistant makes corrections before or after the transcription is presented to the hearing impaired user. Using this purpose and principle of operation, the Board found that the post-presentation corrections of the secondary reference, Cervantes could be incorporated into the system of Engelke I.

The Board also addressed the issue of expert qualification. The petitioner argued that patent owner’s expert witness was not qualified as an expert because he had never worked on a text captioning system for the hearing-impaired prior to the filing date of the challenged patent. Also, patent owner’s expert failed to specify the level of skill of a person having ordinary skill in the art. In response, the patent owner noted that its expert had a master’s degree in electrical engineering and over 30 years of experience in telecommunications, information technology engineering, and voice and text transmissions, and that the level of skill of the person having ordinary skill in the art could be discerned from other evidence in the record. The Board agreed with patent owner, finding that the petitioner’s arguments went to the weight and value of the expert’s testimony, not to whether he was qualified as an expert.

Person of Skill in Art Depends on Claim Scope *Web Only*

The Patent Trial and Appeal Board (PTAB or Board) has explained that arguing a high-level of skill in a narrow art, even in cases involving complex technology, will not exclude an expert who has expertise within the scope of the claimed invention. Carl Zeiss SMT GmbH v. Nikon Corp., IPR 2013-00362 (PTAB, Nov. 14, 2014) (Clements, APJ).

After Carl Zeiss filed a petition requesting inter partes review, the Board granted review all challenged claims. After institution, the patent owner, Nikon, filed a Motion to Exclude Evidence contending that “[b]ecause of the highly specialized nature of projection optical systems,” the level of ordinary skill in the art would have required at least two years of experience in the lithography optics industry and experience in the specification of projection optical systems. Nikon further contended that Carl Zeiss’ expert, Mr. Juergens, whose CV included a master degree in optical systems, was not an expert in the relevant field because he did not have the experience required to be a person of even ordinary skill in the lithography art and moved to exclude his expert testimony. Carl Zeiss countered that Nikon’s expert, Dr. Jose Sasian, regularly invites Mr. Juergens to guest lecture Dr. Sasian’s class on lens design and that Dr. Sasian conceded that Mr. Juergens is an expert on many aspects of optical design.

In its final written decision, the Board determined that Mr. Juergens was qualified as a person of ordinary skill in the art. Particularly, the Board was not persuaded that the level of ordinary skill in the art required at least two years of experience in lithography optics in addition to experience in projection optical systems, explaining that the claims were not limited to the field of lithography, but more broadly to projection optical systems. Based on Mr. Juergens 40 years of experience in the field of optical system design, the Board determined that he was of at least ordinary skill in the art in the art of projection optical systems.

Practice Note: With regard to expert declarations, while a Daubert challenge to an expert might be used tactically to “educate” a panel—it is not likely to result in an exclusion remedy.

Same Prior Art May Be Considered Differently in Connection with Different Petitions

In a request for a rehearing of an earlier decision denying institution of inter partes review, the Patent Trial and Appeal Board (PTAB or Board) ruled that IPR petitions that challenge the same patent and cite to the same prior art but use different arguments, may result in different institution decisions. In re Petition for Inter Partes Review by Mitsubishi Plastics, Inc., IPR 2014-00524 (PTAB, Nov. 21, 2014) (Crumbley, APJ).

Petitioner Mitsubishi requested a rehearing of an earlier PTAB decision denying institution of a proceeding on a patent that had been challenged earlier by two other petitioners, both of whom cited to the same prior art and relied on the same expert as Mitsubishi.

The Board concluded that the evidence three different expert declarations presented in the three petitions was not the same. Rather, “[t]he differences between [the expert’s] declaration in the present case and the one submitted in the [prior and related] proceeding are material, and lead to the different results in our institution decisions.”

In its request for rehearing, Mitsubishi also argued that denying institution of an IPR based on its petition would “undermine the predictability and uniformity of decision making by the PTAB.” The Board disagreed, stating that the decisions in the various IPR petitions were not in conflict “because of the different records presented in each case . . .” In rejecting the petitioner’s argument, the PTAB explained that the “rule [Mitsubishi] proposes—that every Petition citing the same art must be decided identically, regardless of the arguments set forth in the Petition—ignores the adversarial, adjudicative nature of an inter partes review.”

In a different case touching on a similar issue, the PTAB denied institution on the petition precisely because it presented substantially the same arguments and prior art in a related proceeding. Canon Inc. v. Intellectual Ventures I LLC, IPR 2014-00952 (PTAB, Nov. 21, 2014) (Boucher, APJ).

Canon had earlier filed a petition to institute an inter partes review of a challenged patent. Later, Canon filed a second petition to institute another IPR of the same claims of the same patent. The PTAB instituted an IPR on the earlier petition but “because the same claims [were] challenged on the same grounds in [the later filed petition], [it] decline[d] to institute a second inter partes review of the claims on that ground.”

Practice Note: The same prior art reference(s) may be used in different or related inter partes review proceedings as long as the theories and arguments advocated in each are materially different. The PTAB has discretion as to whether to institute where successive IPR petitions relying on the same prior art or similar argument are presented. See IP Update, Vol. 17, No. 11.

Serial Objections to Evidence Are Not Required if Supplemental Evidence Is Filed and Served *Web Only*

The U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB or Board) concluded that a party need not renew an objection to evidence if the opposing party serves supplemental evidence intended to cure the objection. American Honda Motor Co., Inc. v. American Vehicular Sciences LLC, Case No. IPR2014-00633 (PTAB, Nov. 3, 2014) (Parvis, APJ).

In the course of an inter partes review (IPR) the patent owner, American Vehicular Sciences, objected to an exhibit filed by the petitioner, Honda. In response, the petitioner filed and served four supplemental exhibits intended to cure the patent owner’s objection to the original exhibit. The patent owner then timely filed a motion to exclude the original exhibit. After a conference call to discuss whether serial objections to the original exhibit were required to preserve the original objection, the Board ordered that the IPR rules do not require an additional objection so as to preserve a right to file a motion to exclude simply because supplemental evidence has been filed and served.

PTAB Issues Rare Dissent in Non-Institution Decision *Web Only*

In a decision denying institution of an inter partes review (IPR), the U.S. Patent and Trademark Office’s Patent Trial and Appeals Board (PTAB or Board) decided that the threshold for institution had not been met regarding the petitioners’ two prior art–based grounds. One administrative patent judge issued a dissenting opinion, and, in doing so, may have set the stage for a rehearing on the institution decision. AOL Inc., et al. v. Coho Licensing LLC, Case No. IPR2014-00771 (PTAB, Nov. 10, 2014) (Quinn, APJ) (Capp, APJ, dissenting-in-part).

Petitioners AOL and Cloudera filed a petition seeking IPR of Coho’s patent directed to distributed computer processing in a network environment. According to the claimed invention, for this distributed computing, a computer that has been allocated a portion of a task may reallocate a portion of its task to another computer in the network. The petitioners challenged the claims of the patent based on three grounds, anticipation based on the Spawn reference, obviousness based on the Spawn reference in light of the Kisor reference and obviousness based solely on the knowledge and skill of a person of ordinary skill in the art.

In the majority decision, the Board stated that the petitioner had failed to sufficiently demonstrate that Spawn disclosed the transfer and allocating limitations. The majority also expressed belief that the Kisor reference failed to remedy the shortcomings of the Spawn reference. The majority decision rejected the third ground, obviousness based on the knowledge and skill of one of ordinary skill in the art, as being conclusory and failing to provide a detailed explanation of the significance of the evidence and for failing to identify where each element of each challenged claim is found in the prior art. As to the supporting declaration testimony for the latter ground, the Board characterized the declarant’s testimony as referring “generally to voluminous excerpts from three computer science treatises.”

In his dissent, Judge Capp agreed with the majority decision as to the third ground, but argued that the petitioner had made a sufficient threshold showing that Spawn discloses each and every limitation of the challenged claims and thus anticipates. Noting that the claims at issue utilized the open-ended transition phrase “comprising,” Judge Capp explained that the Spawn reference was actually more sophisticated than the challenged invention. The dissent also noted that under the applicable broadest reasonable construction, the term “allocating computer” should be no narrower than “a user’s computer from which a distributed processing task originates.” The dissent faults the majority who, in turn, faulted the petitioner for not detailing “how” the date processing task is allocated and distributed (in the prior art) but that such a fault allocation was inappropriate as the claims only required “that” the data processing task is allocated and sub-allocated while the only “how” requirement was that “all the foregoing transferring occurs by network connection.” The dissent stated “[g]iven the breadth of the claim language, I do not believe that a detailed showing of ‘how’ the transfer occurs is or should be required as part of a threshold showing institute trial in this case.” The dissent relied on essentially the same logic for the obviousness position (based on the combination of Spawn and Kisor) noting that, based on the record, the challenged patent does nothing more than arrange old elements with each performing the same function it had been known to perform.

Patent Owner Must Distinguish Universe of All Known Prior Art to Substitute a New Claim

Detailing the requirements for amending claims in an inter partes review (IPR), the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) explained that a patent owner must establish patentability of a new claim over all known prior art, not only the references raised in the proceeding. Corning Optical Commc’ns RF, LLC v. PPC Broadband, Inc., Case No. IPR2014-00441 (PTAB, Oct. 30, 2014) (Lee, APJ.).

Corning Optical initiated an IPR of PPC Broadband’s patent. During the proceeding, the parties telephonically discussed with the Board PPC’s intent to move to amend the claims. The PTAB offered PPC verbal guidance about the requirements of such a motion, which was transcribed by a court reporter. The PTAB also provided additional written guidance to PPC in its order.

The PTAB specified its universal expectations (and requirements) for amending claims during an IPR proceeding. Only two amendments are permissible—cancellation and substitution. Although a claim may be cancelled without condition, a substitution may only be made if the claim being replaced is first deemed unpatentable or cancelled. Barring special circumstances, each substitute claim must be tied a single original claim. The substitution—usually an addition of an element to the original claim—should respond to the ground of unpatentability applicable to the original claim.

Because a substitute claim would not otherwise be examined, the patent owner must further establish the patentability of the claim. Even if the substitution is premised on a ground of unpatentability over specific prior art, the patent owner must show patentability over all known prior art. It is not sufficient for the patent owner to distinguish only over those references raised by the petitioner. Rather, the patent owner must explain whether the newly added matter “was previously known anywhere, in whatever setting, and whether or not the feature was known in combination with any of the other elements in the claim.” If it were known, the patent owner must explain why the combination of the added and original claim elements would not have been obvious. Even though a patent owner is not expected to know everything, it is expected to reveal its relevant knowledge.

The PTAB also identified other requirements for substituting a claim. For example, the patent owner must identify written description support for the entirety of a substitute claim in the original disclosure, not the issued patent specification. In another example, the PTAB noted that if a substitute claim introduces a new term whose meaning can be reasonably anticipated to be in dispute, the patent owner must propose a construction for that term. If the plain and ordinary meaning should apply, then that meaning must be defined and supported by evidence.

Navigating Degrees of Separation: Impermissible Incorporation by Reference *Web Only*

Following a conference call held with respect to three separate proceedings presenting an identical issue, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) issued an order on the conduct of the proceeding, clarifying its rule relating to incorporation by reference. T-Mobile USA, Inc. v. Mobile Telecoms. Technologies, LLC, Case Nos. IPR2015-00015; -00017 and -00018 (PTAB, Nov. 3, 2014) (Chang, APJ).

In each of its petitions for inter partes review (IPR), the petitioner filed two separate expert declarations as exhibits—one created by the petitioner’s own expert and one filed by another petitioner in a different matter. The petitioner cited to both expert declarations for support in its petitions. At issue, the declaration of the petitioner’s expert witness incorporated by reference “a large portion” of the declaration of the expert witness from the separate matter.

37 C.F.R. § 42.6(a)(3) states that “[a]rguments must not be incorporated by reference from one document into another document. Combined motions, oppositions, replies, or other combined documents are not permitted.” The petitioner argued that the rule did not apply to the declaration of its expert witness, because the rule was directed only to incorporating arguments by reference, and the declaration itself contained testimonial evidence, not arguments. The PTAB closed down the argument, noting that the petitioner’s rationale focused on “only the first word of the first sentence of the rule, and failed to consider the rule as a whole.” Instead, the PTAB determined that the petitioner had essentially combined the two expert declarations that it filed, which is impermissible under 37 C.F.R. § 42.6(a)(3).

After receiving the clarification, the petitioner requested leave to file a corrected expert declaration. The patent owner opposed the request, arguing that the petitioner was obligated to conduct its own legal research earlier in the matter and therefore should have made the necessary corrections before filing petitions. Further, the patent owner took the position that granting the petitioner’s request to correct the declaration would prejudice the patent owner because such a correction would be substantive.

The PTAB did not find the patent owner’s objections to be persuasive. As an initial matter, the PTAB noted that the petitioner had filed both declarations with its petitions and had clearly cited to the declarations for support. Additionally, each petition provided “direct citations to the Declaration of [the expert] and to the prior art references.”

Given the early state of the proceedings, the PTAB did not find that correcting the expert declaration would prejudice the patent owner, provided that any corrections did not introduce substantive changes to the declaration. To the contrary, the PTAB determined that “the corrected Declaration, most likely, would clarify the record and simplify discovery.”

Deposition of Declarants Is Limited after Routine Discovery *Web Only*

In an Order on Conduct of the Proceedings, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) denied a patent owner’s request to depose a petitioner’s declarant whose declarations had been served but not made of record. Valeo, Inc. v. Magna Electronics, Inc., Case Nos. IPR2014-00221, -00227 (PTAB, Nov. 13, 2014) (Clements, APJ).

In a Petitioner’s Reply to Patent Owner Response, the petitioner submitted new evidence that it contended was directly responsive to arguments made by the patent owner in its Patent Owner Response and directed to the credibility of the patent owner’s expert, rather than to bolster the underlying grounds of unpatentability on which the IPR was instituted. The patent owner disagreed with the petitioner’s characterization and further asserted that one of the cited references did not constitute prior art. The Board reserved the issue of whether the new evidence was outside the proper scope of a reply to the final written decision.

Meanwhile, in response to the challenge that the new evidence did not constitute prior art, the petitioner served the patent owner with two declarations directed to the authenticity of the prior art reference, but did not make the declarations of record by filing them in the Patent Review Processing System (PRPS). The patent owner timely objected to each of the declarations.

During a teleconference, the patent owner indicated that it intended to file a Motion to Exclude regarding the new evidence and expected that the petitioner would rely upon the declarations as exhibits to oppose the Motion to Exclude. The patent owner stated it had not yet tried to depose the declarant because it believed that it was not entitled to do so until the petitioner relied upon the declarations by entering them in the record. The patent owner requested an order from the Board indicating that it was entitled to depose the declarant either before filing the Motion to Exclude or a reply in support of the motion.

The Board noted that “the declaration was not served recently” and that the patent owner had been in possession of the declarations “for some time.” The Board explained that even though the declarations were not filed in PRPS, the patent owner was not precluded from pursuing a deposition of the declarant. Cross-examination of an opposing party’s declarant is available as routine discovery, regardless of whether the petitioner had actually filed the declaration. Accordingly, the Board denied the request for deposition as improper additional discovery.

Practice Note: Depositions of known declarants within a PTAB proceeding should be sought during the period of routine discovery, even if the declaration at issue has not yet been made of record.

Pro Se Not Welcome at PTAB

Denying a request from patent owner’s counsel to withdraw from an inter partes review (IPR), the U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB or Board) refused to allow the inventor to proceed pro se because the real party in interest was a juristic entity. Shire Development LLC v. LCS Group, LLC, Case No. IPR2014-00739 (PTAB, Nov. 21, 2014) (Green, APJ).

LCS Group, LLC, a juristic entity, was designated as the patent owner and real party in interest in the Patent Owner’s Mandatory Notices and represented by counsel in the IPR proceeding. The inventor of the patent at issue, ostensibly with patent owner’s approval, wanted to represent himself in the proceeding. Counsel’s withdrawal from an IPR proceeding requires authorization from the Board. 37 C.F.R. § 42.10(e). The Board refused to allow patent owner’s counsel to withdraw because the patent owner and real party-in interest was a juristic entity.

The Board also indicated that the request may not succeed even if the patent owner were to assign ownership back to the inventor because a mere reassignment of ownership may not be sufficient to establish the inventor as the only real party in interest, citing Case No. IPR2013-00010 to assert that patent ownership is not the proper test for determining the real party in interest.

Suggesting its reluctance to allow pro se representation notwithstanding the issue of real party in interest, the Board noted that pro se representation could carry significant risk in view of the complex and very technical nature of the proceedings.

Nothin' from Nothin' Leaves Nothin'

The U.S. Court of Appeals for the Eleventh Circuit affirmed a district court’s $1.32 million judgment in favor of a medical device maker, ruling that it never owned the trademarks in question and therefore could not have passed the rights in the trademarks to a successor. Axiom Worldwide Inc. v. Excite Medical Corp. et al., Case No. 13-13900 (11th Cir., Nov. 17, 2014) (Rosenbaum, J.)

Axiom Worldwide, Inc. (Axiom, Inc.) developed, manufactured and sold medical products and owned various trademarks for use in connection with its products. In 2007, Axiom, Inc. transferred all of its assets, including its “goodwill,” to non-party Axiom Worldwide, LLC (Axiom, LLC) via a warranty bill of sale. The bill of sale was made retroactive to January 3, 2006. Axiom, LLC later transferred the acquired assets to Progress Bank, and in July 2010, HTRD purchased all of the assets from Progress Bank. HTRD, set up by a former employee of Axiom, Inc., produced generic medical devices sold as authorized Axiom products. The former employee had forged Axiom, Inc. CEO’s signature on a document claiming that HTRD had been given the rights to Axiom, Inc.’s intellectual property in China. HTRD also believed that the assets purchased from Progress Bank included Axiom, Inc.’s intellectual property rights. However, it had been determined in an earlier ruling by another court that the intellectual property rights was not part of the transfer of assets to Axiom, LLC, and therefore the trademarks in question still belonged to Axiom, Inc.

In 2011, Axiom, Inc. filed a lawsuit for trademark infringement, copyright infringement and misappropriation of trade secrets against HTRD and its affiliated companies and several former Axiom, Inc. employees (collectively, the defendants) arguing that the defendants made counterfeit devices and tried to steal its trademarks. Axiom, Inc. also claimed that HTRD had submitted false and misleading information to the U.S. Patent and Trademark Office in an attempt to steal Axiom Inc.’s trademarks.

The district court found that the rights in the trademarks had not been transferred from Axiom, Inc. in connection with the warranty bill of sale and that the defendants infringed Axiom, Inc.’s trademarks. The district court further found that the former employee Saleem Musallam was individually liable for $85,000 in statutory damages and that HTRD’s U.S.-affiliated Excite Medical Corp. was liable for $1.32 million. The defendants appealed, claiming they had rights in the trademarks and contesting the amount of damages set by the district court.

The 11th Circuit affirmed the district court, noting, “[b]ecause we agree with the district court (and Billy Preston and Bruce Fisher, for that matter) that ‘nothin’ from nothin’ leaves nothin’,’ and because we find no error in any of the district court’s other challenged rulings, we affirm.”

First Amendment Protects Use of Third-Party’s Trademark in Video Game

Confirming that video games, including customizable multi-player games, qualify as expressive works entitled to First Amendment protection, a California district court granted summary judgment in favor of video game publisher on trademark infringement claims brought by the owner of a trademarked military patch design, which appears in the video game publisher’s military combat themed video game. Mil-Spec Monkey, Inc. v. Activision Blizzard, Inc. et al. Case No. 3:14-cv-02361 (N.D. CA, Nov. 24, 2014) (Seeborg, J.)

Plaintiff Mil-Spec Monkey, Inc. (MSM), a military supply and outfitting company, brought claims of copyright and trademark infringement against Activision Blizzard (Activision) for its inclusion of MSM’s “angry monkey” military morale patch in the multi-player edition of Activision’s “Ghosts” video game, the tenth game in the defendant’s “Call of Duty” series. MSM’s morale patches are worn by military personnel in unofficial contexts to express personal interests or identity, and MSM’s “angry monkey” patch is the most well-known and popular of its morale patch designs. MSM owns a federal trademark registration for the “angry monkey” design and claims that it has used the “angry monkey” trademark in commerce since 2007. In the “Ghosts” game, an image similar to MSM’s “angry monkey” patch appears as one of 32 standard issue patches (and one of over 600 patches that can be “unlocked” throughout the game) that are available for players to customize their soldier avatars, among other customization options including gender, uniform style, and gear accessories. Patches then appear within the “Ghosts” game to identify player characters, as well as in certain game menus. Because the patches and other customizable options are not mandatory, however, it is possible that the “angry monkey” patch would never appear during a particular game play series. Outside of the game itself, the “angry monkey” patch image appears for two seconds in Activision’s promotional trailer for the video game.

In response to MSM’s claims of trademark infringement, Activision moved for partial summary judgment on the theory that use of the “angry monkey” design in the “Ghosts” video game is protected by the First Amendment, and does not cause consumer confusion as to the source or sponsorship of the game and the patches depicted in the game. Citing the Supreme Court’s decision in Brown v. Entertainment Merchants Association, the court explained that video games are core speech entitled to safeguards of the First Amendment.

To determine whether the First Amendment precluded MSM’s trademark infringement claims, the court relied on the U.S. Court of Appeals for the Ninth Circuit’s two-pronged analysis from Rogers v. Grimaldi, which explained that an artistic work’s use of a trademark that would otherwise violate the Lanham Act is not actionable unless the use of the mark “has no artistic relevance to the underlying work whatsoever” or if it has some artistic relevance, but “explicitly misleads as to the source of the content of the work.” On the issue of artistic relevance, the court noted that the “Ghosts” video game, as with each of the “Call of Duty” games, incorporates real combat force names, military gear, known locations and other “real-world” references to create an authentic universe consistent with the game creators’ vision. Therefore, the court determined that the video game’s inclusion of the well-known “angry monkey” morale patches that are worn by military personnel in real life bears “some artistic relevance” to the creators’ goal of offering players a feeling of personal identity and authenticity during game play. The court concluded held that MSM failed to demonstrate a genuine issue of material fact as to whether Activision used the “angry monkey” trademark in an explicitly misleading manner. Instead, the court noted that Activision’s video game packaging was clear as to its source and origin and that Activision’s use of the trademarked patch design in promotional materials did not mislead consumers, nor did it affirmatively purport in any way to share a relationship with MSM, and was therefore protected by the First Amendment.

Supreme Court of Arizona Weighs in on the Preemption Provision of the State’s Trade Secrets Act

The Uniform Trade Secrets Act’s (UTSA) displacement provision creates an exclusive cause of action for claims based on misappropriation of trade secrets and preempts conflicting tort and other causes of action that provide civil remedies for trade-secret misappropriation. Currently, there is a split of authority on whether the Uniform Act displaces all common-law tort claims based on misappropriation of confidential information, whether or not the information at issue constitutes a statutorily defined “trade secret.” The Arizona Supreme Court, interpreting Arizona’s Uniform Trade Secret Act (AUTSA), narrowly interpreted the relevant preemption terms and held that the AUTSA does not displace common law claims for misappropriation of confidential information if that information falls outside the Act’s definition of “trade secret.” Orca Communications Unlimited, LLC v. Noder, Case No. CV-13-0351 (Ariz., Nov. 19, 2014) (Pelander, J.).

Public relations firm Orca Communications brought a claim for unfair competition against Ann Noder, its former president, when Noder started her own public relations company and allegedly urged Orca’s customers to do business with her new firm. Unfair competition was the only cause of action at issue, and Orca claimed that Noder had learned “confidential and trade secret information” such as Orca’s “business model, operating procedures, techniques, and strengths and weaknesses” and intended to steal and exploit that information to gain a competitive advantage for her business.

The state superior court dismissed Orca’s complaint concluding that the AUTSA entirely preempted Orca’s common law tort claims with respect to the misappropriation of all confidential information, even if that information did not rise to the level of a trade secret. The state court of appeals reversed in part. Because the scope of the AUTSA’s displacement provision was found to be a “legal issue of statewide importance,” the Arizona Supreme Court granted review.

The Court then reviewed the plain language of the AUTSA and determined that, on its face, AUTSA’s displacement provision preempts only conflicting tort claims for “misappropriation” of a “trade secret”—two terms that are specifically defined by the Act—and leaves undisturbed claims “that are not based on misappropriation of a trade secret.” Because Orca’s unfair competition claim was not limited to trade secrets, the Court determined that the lower court erred in dismissing that claim on preemption grounds.

The Court did not decide what aspects, if any, of the confidential information alleged in Orca’s unfair competition claim might fall within the AUTSA’s definition of “trade secret,” and the Court refrained from deciding whether Arizona even recognizes a common-law claim for unfair competition. The Court also reversed the superior court’s dismissal of Orca’s unfair-competition claim and remanded the case for further proceedings on those undecided issues.

Practice Note: It is unlikely the Arizona Supreme Court’s decision will resolve the national split of authority on the displacement issue, as the Court was clear to explain that its holding did not take into consideration decisions from other jurisdictions. Furthermore, the Court noted that the AUTSA does not contain the directive language included in the UTSA, which states that the Act shall be applied and construed to make uniform the law among the states enacting it.

Back to the Future—Supreme Court to Review Rule On Post-Expiration Patent Royalties

The U.S. Court of Appeals for the Ninth Circuit, in affirming a district court decision that toy maker Marvel was not required to make payments after the expiration of a patent, criticized the Brulotte rule that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.” (See IP Update, Vol. 16, No. 8.) The U.S. Supreme Court has now granted the patent owner’s (Kimble) petition for writ of certiorari seeking to overturn 50-year-old Supreme Court precedent that a patent owner cannot enforce a license requiring patent royalty payments after the patent expires. Kimble v. Marvel Enterprises, Case No. 13-720; (Supr. Ct., Dec. 12, 2014).

The question presented in Kimble’s petition is simply “Whether this Court should overrule Brulotte v. Thys Co.”

Note: The Solicitor General urged the Supreme Court not to accept the case, arguing that there “is no sound basis for casting aside a 50-year-old interpretation,” i.e., Brulotte v. Thys Co., (Supr. Ct., 1964).

Supreme Court to Consider Scope of “Good Faith” Belief and the Intent Requirement of § 271(b)

Earlier this year, the U.S. Court of Appeals for the Federal Circuit ruled that a good-faith belief that a patent is invalid may negate the element of intent required to prove induced infringement. In that split-panel decision (with Judge Newman dissenting), Judge Prost explained that “[w]e see no principled distinction between a good-faith belief of invalidity and a good-faith belief of non-infringement for the purpose of whether a defendant possessed the specific intent to induce infringement of a patent.” Commil USA v. Cisco Systems, see IP Update, Vol. 16, No. 7.

Now the U.S. Supreme Court has agreed to review whether a good-faith belief that a patent is invalid is sufficient to avoid liability under the active inducement statute. Commil USA v. Cisco Systems, Case No. 13-896 (Supr. Ct., Dec. 5, 2014).

The sole issue to be decided by the Supreme Court is whether the Federal Circuit erred in holding that a defendant’s belief that a patent is invalid is a defense to induced infringement under 35 U.S.C. § 271(b).

The solicitor general had urged the Supreme Court to take this question for review but to deny review of the second question originally proposed, which went to an issue relating to the jury instructions in the case.

Justice Breyer did not participate in the order granting certiorari.